UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For The Quarterly Period Ended June 30, 1998
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period From _____ to ______
Commission File Number 0-29048
ACCENT COLOR SCIENCES, INC.
(Exact name of registrant as specified in its charter)
Connecticut 06-1380314
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
800 Connecticut Boulevard, East Hartford, Connecticut 06108
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code:(860) 610-4000
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes/X/ No/ /
The number of shares outstanding of the registrant's common stock
as of July 28, 1998 was 12,450,404.
ACCENT COLOR SCIENCES, INC.
FORM 10-Q
For The Quarterly Period Ended June 30, 1998
INDEX
Part I. Financial Information
Item 1. Financial Statements 3
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 10
Part II. Other Information
Item 1. Legal Proceedings 14
Item 2. Changes in Securities and Use of Proceeds 14
Item 3. Defaults Upon Senior Securities 14
Item 4. Submission of Matters to a Vote of Security Holders 14
Item 5. Other Information 14
Item 6. Exhibits and Reports on Form 8-K 14
Signatures 15
<TABLE>
<CAPTION>
ACCENT COLOR SCIENCES, INC.
(a development stage company)
CONDENSED BALANCE SHEETS
June 30, December 31,
1998 1997
(unaudited)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 1,430,487 $4,005,563
Accounts receivable 678,523 439,934
Inventories (Note 3) 5,916,350 4,611,216
Prepaid expenses and other
assets 193,216 323,306
Total current assets 8,218,576 9,380,019
Fixed assets, net 2,509,156 2,974,422
Other assets, net 70,237 52,698
Total assets $10,797,969 $12,407,139
Liabilities and Shareholders'
Equity
Current liabilities:
Obligations under capital
leases 64,559 61,360
Accounts payable 1,022,837 859,693
Accrued expenses 593,020 1,041,383
Customer advances and deposits - 85,600
Deferred revenue 3,280,600 2,496,000
Total current liabilities 4,961,016 4,544,036
Obligation under capital leases 56,725 91,937
Other long-term liabilities 575,019 501,644
Total non-current
liabilities 631,744 593,581
Shareholders' equity:
Preferred stock,no par value
500,000 shares authorized,
4,100 and 0 share issued and
outstanding (Note 4) 3,572,495 -
Common stock, no par value,
35,000,000 and 25,000,000
shares authorized,
12,198,836 and 11,989,855
shares issued and outstanding 45,507,801 45,114,633
Deficit accumulated during the
development stage (43,875,087) (37,845,111)
Total shareholders'
equity 5,205,209 7,269,522
Total liabilities and
shareholders' equity $10,797,969 $12,407,139
</TABLE>
The accompanying notes are an integral part of these financial statements.
<TABLE>
<CAPTION>
ACCENT COLOR SCIENCES, INC.
(a development stage company)
CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
For the period
from inception
(May 21, 1993)
Three months ended June 30, Six months ended June 30, through
1998 1997 1998 1997 June 30, 1998
<S> <C> <C> <C> <C> <C>
Revenue $421,517 $546,407 $1,338,250 $ 546,407 $ 2,915,758
Costs and expenses:
Costs of production 1,149,207 1,594,218 2,777,255 2,528,436 11,446,439
Research and
development 1,049,155 2,237,589 2,528,102 4,366,039 22,121,227
Marketing, general
and administrative 1,210,130 1,332,448 2,119,472 2,490,217 12,422,265
3,408,492 5,164,255 7,424,829 9,384,692 45,989,931
Other (income) expense:
Interest expense 7,310 72,001 15,093 141,699 1,011,473
Interest income (39,681) (159,858) (71,696) (353,968) (783,862)
(32,371) (87,857) (56,603) (212,269) 227,611
Net loss before
extraordinary item (2,954,604) (4,529,991) (6,029,976) (8,626,016) (43,301,784)
Extraordinary item:
Loss on early
extinguishment of debt,
net of income taxes of
nil - - - - (573,303)
Net loss $(2,954,604) $(4,529,991) $(6,029,976) $(8,626,016) $(43,875,087)
Imputed dividend on
preferred stock (Note 4) - - (920,000) - (920,000)
Net loss applicable to
common stock $(2,954,604) $(4,529,991) $(6,949,976) $(8,626,016) $(44,795,087)
Net loss (basic &
diluted) per common
share (Note 2) $ (.24) $ (.45) $ (.57) $ (.85)
Weighted average common
shares outstanding
(Note 2) 12,198,836 10,139,775 12,096,580 10,139,775
</TABLE>
The accompanying notes are an integral part of these financial statements.
<TABLE>
<CAPTION>
ACCENT COLOR SCIENCES, INC.
(a development stage company)
CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
Six months ended June 30, For the period from
incecption (May 21,1993)
through
1998 1997 June 30, 1998
<S> <C> <C> <C>
Cash flows from operating
activities:
Net loss before imputed
dividend $ (6,029,976) $ (8,626,016) $(43,875,087)
Adjustments to reconcile
net loss to net cash used in
operating activities:
Depreciation and
amortization 578,690 510,560 2,795,720
Write-off of deferred
offering costs - - 47,264
Expense related to
stock and options granted - - 363,630
Debenture issued for
services - - 50,000
Loss on disposal of
fixed assets 13,453 11,460 116,982
Conversion of accrued
interest to common stock - - 231,147
Extraordinary loss on
extinguishment of debt - - 573,303
Changes in assets and
liabilities:
Accounts receivable (238,589) (186,298) (678,523)
Inventories (1,305,134) (744,023) (5,916,350)
Prepaid expenses and
other assets 130,090 (7,921) (193,216)
Accounts payable and
accrued expenses (285,219) (694,085) 1,438,336
Customer advances and
deposits (85,600) (376,640) -
Deferred revenue 784,600 458,000 3,280,600
Other long-term
liabilities 73,375 289,683 575,019
Net cash used in
operating activities (6,364,310) (9,365,280) (41,191,175)
Cash flows from investing
activities:
Proceeds from sale of fixed
assets - - 5,524
Purchases of fixed assets (126,592) (1,010,724) (4,548,839)
Cost of patents (17,825) (19,553) (72,591)
Net cash used in
investing activities (144,417) (1,030,277) (4,615,906)
Cash flows from financing
activities:
Payment of capital lease
obligations (32,012) (38,513) (173,110)
Net proceeds from issuance
of debentures - - 4,839,101
Proceeds from issuance of - - 318,113
warrants
Net proceeds from issuance
of common stock - - 38,407,134
Proceeds from exercise of
options & warrants 44,625 - 2,523,172
Net proceeds from issuance
of preferred
stock through offerings
and conversion of debt 3,921,038 - 5,351,672
Increase in long term debt - - 2,223,750
Repayment of debentures - - (6,205,000)
Deferred offering costs - - (47,264)
Net cash provided by
(used in) financing
activities 3,933,651 (38,513) 47,237,568
Net increase
(decrease) in cash and cash
equivalents (2,575,076) (10,434,070) 1,430,487
Cash and cash
equivalents at beginning of
period 4,005,563 20,288,535 -
Cash and cash
equivalents at end of period $1,430,487 $9,854,465 $1,430,487
</TABLE>
The accompanying notes are an integral part of these financial statements.
<TABLE>
<CAPTION>
ACCENT COLOR SCIENCES, INC.
(a development stage company)
CONDENSED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Deficit Accumulated
During the
Common Stock Preferred Stock Development
Shares Amount Shares Amount Stage Total
<S> <C> <C> <C> <C> <C> <C>
Proceeds from
sale 3,900 $21,800 - $ - $ - $21,800
Net loss - - - - (45,398) (45,398)
December 31, 1993 3,900 21,800 - - (45,398) (23,598)
Stock split 1,751,100 - - - - -
Conversion of
debentures - - 74,360 371,804 - 371,804
Proceeds from
sale - - 160,000 643,770 - 643,770
Conversion of
promissory notes 42,000 50,000 - - - 50,000
Reclassification - (20,500) - - - (20,500)
Shares issued for
services - - 15,000 75,000 - 75,000
Net loss - - - - (1,153,533) (1,153,533)
December 31, 1994 1,797,000 51,300 249,360 1,090,574 (1,198,931) (57,057)
Proceeds from
sale - - 75,000 340,060 - 340,060
Exercise of
warrants 297,840 694,960 - - - 694,960
Options granted
to service
Provider - 18,400 - - - 18,400
Warrants issued
with debt - 56,631 - - - 56,631
Net loss - - - - (4,216,955) (4,216,955)
December 31, 1995 2,094,840 821,291 324,360 1,430,634 (5,415,886) (3,163,961)
Warrants issued
with debt - 138,032 - - - 138,032
Proceeds from
sale 2,625,000 9,460,044 - - - 9,460,044
Warrants issued
with debt - 123,450 - - - 123,450
Proceeds from
initial public
offering 3,450,000 24,409,464 - - - 24,409,464
Conversion of
Series III
debentures 607,626 2,116,575 - - - 2,116,575
Conversion of
Preferred
stock 1,362,309 1,430,634 (324,360) (1,430,634) - -
Net loss - - - - (13,738,661) (13,738,661)
December 31, 1996 10,139,775 38,499,490 - - (19,154,547) 19,344,943
Exercise of
options 92,250 465,067 - - - 465,067
Exercise of
warrants 394,091 1,445,000 - - - 1,445,000
Shares issued in
connection with
the Xerox
agreement 50,000 218,750 - - - 218,750
Proceeds from
sale 1,313,739 4,486,326 - - - 4,486,326
Net loss - - - - (18,690,564) (18,690,564)
December 31, 1997 11,989,855 45,114,633 - - (37,845,111) 7,269,522
Proceeds from
sale - - 4,500 3,921,038 - 3,921,038
Exercise of
options 37,500 44,625 - - - 44,625
Conversion of
Series B
Preferred
Stock 171,481 348,543 (400) (348,543) - -
Net loss before
imputed dividend - - - - (6,029,976) (6,029,976)
June 30, 1998 12,198,836 $45,507,801 4,100 $3,572,495 $(43,875,087) $ 5,205,209
(unaudited)
</TABLE>
The accompanying notes are an integral part of these financial statements.
1. Interim Condensed Financial Statements
In the opinion of the Company, the accompanying unaudited
condensed financial statements contain all adjustments,
consisting only of normal recurring adjustments, necessary to
present fairly its financial position as of June 30, 1998 and the
results of operations and cash flows for the six months ended
June 30, 1998 and 1997 and the period from inception (May 21,
1993) through June 30, 1998. The December 31, 1997 balance sheet
has been derived from the Company's audited financial statements
at that date. These interim condensed financial statements should
be read in conjunction with Management's Discussion and Analysis
and financial statements included in the Company's Annual Report
on Form 10-K for the year ended December 31, 1997.
The results of operations for the six months ended June 30, 1998
are not necessarily indicative of the results to be expected for
the full year.
2. Summary of Significant Accounting Policies
Significant accounting policies followed in the preparation of
these financial statements are as follows:
Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Revenue Recognition
Revenue is generally recognized upon product shipment and
customer acceptance. The Company has established warranty
policies that, under specific conditions, enable customers to
return products. The Company establishes liabilities for
estimated returns and allowances at the time of revenue
recognition. Until such time that the Company has adequate
information to estimate future returns, revenue resulting from
Truecolor Systems is deferred until the end of the warranty
period.
Net Loss Per Common Share
In the fourth quarter of 1997, the Company adopted Statement of
Financial Accounting Standards No. 128, "Earnings per Share," for
all periods presented. Basic earnings per share computations are
determined based on the weighted average number of shares
outstanding during the period. The effect of the exercise and
conversion of all securities, including stock options and
warrants would be antidilutive and thus is not included in the
diluted earnings per share calculation.
3. Inventories
Inventories consist of the following:
June 30, December 31,
1998 1997
Raw materials and components $2,108,647 $1,590,386
Work-in-process 225,884 403,585
Finished goods 3,581,819 2,617,245
$5,916,350 $4,611,216
4. Shareholders' Equity
On January 13, 1998 the Company completed a private equity
financing providing net proceeds to the Company of $3.9 million.
In connection with the financing, the Company issued 4,500 shares
of Series B Convertible Preferred Stock at a price of $1,000 per
share and warrants to purchase the Company's common stock. The
warrants issued are exercisable into 300,000 shares of common
stock with an exercise price of $2.75 and an expiration date of
January 9, 2003. Additionally, warrants exercisable into 115,385
shares of common stock with an exercise price of $2.50 and an
expiration date of January 9, 2003 were issued to the placement
agent for services provided. In connection with the sale of the
units, the Company agreed to register the common stock issuable
upon the conversion of the Series B Convertible Preferred Stock
and the execution of the warrants.
The Series B Convertible Preferred Stock ("Series B Stock"), no
par value per share, is convertible into such number of shares of
common stock as is determined by dividing the stated value
($1,000) of each share of Series B Stock (as such value is
increased by an annual premium of 6%) by the then current
conversion price of the Series B Stock (which is determined,
generally, by reference to 85% of the average of the closing
market price of the common stock during the five consecutive
trading days immediately preceding the date of determination)
subject to certain restrictions and adjustments. The Series B
Stock has voting rights as defined in the Company's Certificate
of Incorporation, bears no dividends and ranks prior to the
Company's Common Stock and Series A Preferred Stock. In the event
of any voluntary or involuntary liquidation of the Company, the
Series B holders shall be entitled to a liquidation preference
equal to the stated value of the stock plus the accrued premium
through the date of final distribution. Upon occurrence of
specific events, as defined in the agreement, the holder may
redeem the Series B Stock for cash or shares at the option of the
Company. The Company also has optional redemption rights.
The Company has reserved 6,300,000 shares of common stock for
issuance pursuant to the conversion of the Series B Stock. This
number of shares represents an estimate based on 200% of the
number of common shares that would have been issuable upon
conversion with an exercise price of $1.875 per share (4,800,000)
and 1,500,000 shares issuable under the terms of the Certificate
of Designation in the event of certain failures by the Company to
comply with various provisions thereof. The actual number of
shares issuable upon conversion could be materially less or more
than such estimated number depending on factors that cannot be
predicted by the Company. The number of shares issuable upon
conversion is dependent on (a) the market price of the common
stock at the time of the conversion and (b) the Company's ability
to maintain its NASDAQ listing. In addition, 415,385 shares of
common stock, subject to adjustments in accordance with the terms
of each warrant, were reserved for issuance pursuant to the
exercise of the warrants described above.
The terms of conversion of the Series B Stock issued in January
1998 afforded the holders a conversion price lower than the
market price of the common stock at the time of issuance. The
difference between the conversion price and market price was
treated as an imputed (non-cash) dividend for purposes of
calculating net loss per common share, although no assets of the
Company were expended. The imputed dividend is approximately
$920,000 and has the effect of increasing the net loss per common
share by $.08 per share for the six months ended June 30, 1998.
The imputed dividend will be given no other accounting treatment
in the 1998 financial statements of the Company and beyond. As
of June 30, 1998, 400 shares of Series B Stock had been converted
into 171,481 shares of common stock at an average conversion
price of $2.36 per share.
Depending on the number of shares of Series B Stock converted
into common shares and the timing of such conversions, the
transactions may result in further Section 382 annual limitations
of net operating loss carryforwards.
5. Restructuring
In May 1998, the Company completed a restructuring of its
personnel consistent with its efforts to focus on sales and
market development and further reduce spending. In connection
with this realignment, the Company eliminated 32 full-time
positions and recorded a charge of approximately $300,000 for
employee severance. Of the total reduction, approximately 50%,
was in the area of operations, 34% in research and development
and 16% in marketing, general and administrative. As of June
30, 1998, accrued severance costs, to be paid through December
31, 1998, totaled $134,000 and remained on the Balance Sheet
under accrued expenses.
6. Subsequent Events
On July 21, 1998, the Company entered into a loan agreement with
International Business Machines Corporation ("IBM") that provides
for a commitment of $2.5 million at a fixed interest rate of 10%
per year. Interest payments are due quarterly with the first
payment due on October 1, 1998. The loan is due in full on
December 31, 2000 and is secured by the assets and intellectual
property of the Company. As part of the loan agreement, the
Company issued a warrant to IBM that provided for the purchase of
500,000 shares of common stock at an exercise price of $2.50 per
share. The warrant expires on July 21, 2003.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Results of Operations
Quarter Ended June 30, 1998 compared to Quarter Ended June 30,
1997.
System Shipments. A total of eleven systems were shipped in the
quarter ended June 30, 1998 compared to three systems in the
quarter ended June 30, 1997. Shipments for the second quarter of
1998 included eight Truecolor System upgrades and three new
systems. These systems were recorded as deferred revenue in
accordance with the revenue recognition policy of the Company.
Backlog of Truecolor Systems as of June 30, 1998, consisted of
forty-two systems totaling $4,465,000 all of which are scheduled
for shipment over the next twelve months. This includes 33 new
systems and 9 upgrades totaling $3,852,000 and $613,000,
respectively.
Revenue Recognized. The Company currently sells its Truecolor
System with a 90-day warranty. Until such time that the Company
has adequate history to estimate future warranty costs, revenue
resulting from the shipment of Truecolor Systems will be deferred
until the end of the warranty period. The Company expects to
obtain a sufficient amount of history to estimate future warranty
costs by the end of the fourth quarter of 1998, which will then
allow the Company to recognize revenue on Truecolor Systems upon
shipment. Revenue recognition on consumables and spare parts
occurs upon shipment.
System sales were $194,000 for the quarter ended June 30, 1998
compared to none for the quarter ended June 30, 1997. Sales for
the second quarter of 1998 consisted of revenue recognized on
three systems of which two were Truecolor System upgrades. As of
June 30, 1998, there were 36 systems, totaling $3,300,000, in
deferred revenue yet to be recognized as revenue by the Company.
Consumables and spare parts sales were $227,000 for the quarter
ended June 30, 1998 compared to $546,000 for the quarter ended
June 30, 1997. Sales of consumables and spare parts were higher
in the second quarter of 1997 compared to the second quarter of
1998 due to our OEM customers filling their sales channels for
the initial introduction of the Truecolor System. Similarly, the
Company experienced higher sales of consumables and spare parts
in the first quarter of 1998 as a result of the introduction of
the enhanced wide-head version of the Truecolor System.
Costs of Production. Costs of production decreased 27.9% from
$1,594,000 for the quarter ended June 30, 1997 to $1,149,000 for
the quarter ended June 30, 1998. This decrease was primarily
attributed to (i) a decrease in sales of consumables and spare
parts in the second quarter of 1998 compared to the second
quarter of 1997, (ii) less manufacturing overhead payroll costs
due to the reduction in personnel, and (iii) less operating costs
incurred. These items were partially offset by an increase in
system cost of sales totaling approximately $200,000 due to the
sale of three systems in the second quarter of 1998 compared to
none in the second quarter of 1997.
Research and Development Expenses. Research and development
expenses decreased 53.1% from $2,238,000 for the quarter ended
June 30, 1997 to $1,049,000 for the quarter ended June 30, 1998
as the Company directed its efforts toward production, sales and
market development with a less significant emphasis on research
and development. The decrease in research and development
expenses was primarily attributed to four major factors: (i) a
reduction in payroll related costs as a result of the Company's
reduction of its personnel during 1998, (ii) the Company's
completion of payments to Spectra, Inc. ("Spectra") to maintain
exclusivity rights in 1997, (iii) a reduction in design and
development costs paid to Spectra associated with the development
of the ink jet printheads for the enhanced wide-head version of
the Truecolor System, and (iv) a decrease in materials and
prototype supplies procured for research and development.
Marketing, General and Administrative Expenses. Marketing,
general and administrative expenses decreased 9.2% from
$1,332,000 for the quarter ended June 30, 1997 to $1,210,000 for
the quarter ended June 30, 1998. This decrease was primarily due
to a reduction in professional fees and other administrative
expenses. Marketing costs, however, increased by approximately
$85,000, which primarily encompassed costs incurred for trade
shows, travel and consultants to support the increased sales and
marketing efforts planned for 1998.
Interest Expense and Other (Income) Expense. Interest expense
decreased 90.3% from $72,000 for the quarter ended June 30, 1997
to $7,000 for the quarter ended June 30, 1998. This decrease was
primarily attributed to the elimination of interest expense
resulting from the final payment of outstanding debt with Xerox
Corporation in the second half of 1997. Interest income
decreased 75.0% from $160,000 for the quarter ended June 30, 1997
to $40,000 for the quarter ended June 30, 1998. This decrease in
interest income was attributed to a greater amount of cash
available for investment in the second quarter of 1997 as
compared to the second quarter of 1998, primarily due to the
Company's initial public offering in December 1996.
Six Months Ended June 30, 1998 compared to Six Months Ended June
30, 1997.
System Shipments. A total of sixteen systems were shipped in the
six months ended June 30, 1998 compared to four systems in the
six months ended June 30, 1997. Shipments for the first six
months of 1998 included eight Truecolor System upgrades and eight
new systems. These systems were recorded as deferred revenue in
accordance with the revenue recognition policy of the Company.
Revenue Recognized. System sales were $687,000 for the six
months ended June 30, 1998 compared to none for the six months
ended June 30, 1997. Sales for the first six months of 1998
consisted of revenue recognized on eight systems, of which two
were Truecolor System upgrades.
Consumables and spare parts sales were $651,000 for the six
months ended June 30, 1998 compared to $546,000 for the six
months ended June 30, 1997. This increase in sales of
consumables and spare parts was attributed to our OEM customers
filling their sales channels for the introduction of the new
enhanced wide-head Truecolor System during the first quarter of
1998 in addition to the continued increase in system shipments to
customers in the second quarter of 1998.
Costs of Production. Costs of production increased 9.8% from
$2,528,000 for the six months ended June 30, 1997 to $2,777,000
for the six months ended June 30, 1998. This increase was
primarily attributed to the sale of eight systems in the first
six months of 1998 compared to none in the first six months of
1997. This was partially offset by a reduction in manufacturing
overhead payroll and related costs during the first six months of
1998.
Research and Development Expenses. Research and development
expenses decreased 42.1% from $4,366,000 for the six months ended
June 30, 1997 to $2,528,000 for the six months ended June 30,
1998 as the Company directed its efforts toward production, sales
and market development with a less significant emphasis on
research and development. The decrease in research and
development expenses was primarily attributed to four major
factors: (i) a reduction in payroll related costs as a result of
the Company's reduction of its personnel during 1998, (ii) the
Company's completion of payments to Spectra to maintain
exclusivity rights in 1997, (iii) a reduction in design and
development costs paid to Spectra related to the development of
the ink jet printheads for the enhanced wide-head version of the
Truecolor System, and (iv) a decrease in materials and prototype
supplies procured for research and development.
Marketing, General and Administrative Expenses. Marketing,
general and administrative expenses decreased 14.9% from
$2,490,000 for the six months ended June 30, 1997 to $2,119,000
for the six months ended June 30, 1998. This decrease was
primarily due to a reduction in payroll and other related costs
as a result of the Company's realignment of its resources and a
reduction in costs incurred for professional services. Marketing
costs, however, increased by approximately $146,000, which
encompassed costs incurred for trade shows, travel and
consultants to support the increased sales and marketing efforts
planned for 1998.
Interest Expense and Other (Income) Expense. Interest expense
decreased 89.4% from $142,000 for the six months ended June 30,
1997 to $15,000 for the six months ended June 30, 1998. This
decrease was primarily attributed to the elimination of interest
expense resulting from the final payment of outstanding debt with
Xerox Corporation in the second half of 1997. Interest income
decreased 79.7% from $354,000 for the six months ended June 30,
1997 to $72,000 for the six months ended June 30, 1998. This
decrease in interest income was attributed to a greater amount of
cash available for investment in the first six months of 1997 as
compared to the first six months of 1998, primarily due to the
Company's initial public offering in December 1996.
Liquidity and Capital Resources
The Company's need for funding has increased from period to
period as it has increased its marketing and sales efforts,
continued its research and development activities for the
enhancement of Truecolor Systems and increased production of
Truecolor Systems. To date, the Company has financed its
operations through customer payments, borrowings and sale of
equity securities.
Through June 30, 1998, the Company had received $6.6 million from
the delivery of Truecolor Systems to customers, net proceeds of
$7.8 million from borrowings and the sale of debt securities, net
proceeds of $2.5 million from the exercise of warrants and stock
options and net proceeds of $43.4 million from the sale of equity
securities. Of the net equity proceeds, $24.4 million was raised
in the Company's initial public offering in December 1996 and the
balance of $19.0 million was raised through the private placement
of equity securities.
As of June 30, 1998, the Company's primary source of liquidity
was cash and cash equivalents totaling $1.4 million.
Operating activities consumed $6.4 million in cash during the
first six months of 1998 compared to $9.4 million in the first
six months of 1997. This decrease was primarily attributed to a
decrease in the net loss of the Company, a reduction in prepaid
expenses, less cash utilized in the payment of outstanding
liabilities and an increase in deferred revenue due to system
shipments. This was partially offset by an increase in
inventories and a decrease in other long-term liabilities.
Capital expenditures decreased 88.4% from $1.0 million for the
six months ended June 30, 1997 to $127 thousand for the six
months ended June 30, 1998. This decrease was primarily
attributed to leasehold improvements made in the first quarter of
1997 to occupy the second floor of the facility currently leased
by the Company and purchases of manufacturing and test equipment
throughout the first six months of 1997 to support the Company's
development and manufacturing efforts. The Company's planned
capital expenditures for the remainder of 1998 are approximately
$450,000 and are primarily to support the value engineering and
manufacturing capabilities of the Company.
In May 1998, the Company completed a restructuring of its
resources consistent with its efforts to focus on sales and
market development and further reduce spending. In connection
with this realignment, the Company eliminated 32 full-time
positions and recorded a charge of approximately $300,000 for
employee severance. Of the total reduction, approximately 50%,
was in the area of operations, 34% in research and development
and 16% in marketing, general and administrative. As of June 30,
1998, accrued severance costs, to be paid through December 31,
1998, totaled $134,000 and remained on the Balance Sheet under
accrued expenses.
On July 21, 1998, the Company entered into a loan agreement with
International Business Machines Corporation ("IBM") that provides
for a commitment of $2,500,000 at a fixed interest rate of 10%
per year. Interest payments are due quarterly with the first
payment due on October 1, 1998. The loan is due in full on
December 31, 2000 and is secured by the assets and intellectual
property of the Company. As part of the loan agreement, the
Company issued a warrant to IBM that provided for the purchase of
500,000 shares of common stock at an exercise price of $2.50 per
share, expiring on July 21, 2003. The value of the warrant will
be allocated to common stock with an equivalent discount on the
note, which will be amortized over the life of the note resulting
in a non-cash charge to interest expense.
Based on the current operating plan of the Company, the primary
requirements for cash through the remainder of 1998 will be to
fund operating losses, increased marketing and sales efforts,
commercial production of the enhanced Truecolor System and the
further development and enhancement of the Company's products.
The Company's currently planned research and development activity
is focused on developing higher resolution ink jet printing.
Under the current operating plan, the Company believes that its
existing cash resources and the funds obtained through the loan
agreement with IBM will be sufficient for the financing of its
operations and capital expenditures through the fourth quarter of
1998. In the event the Company is unsuccessful in achieving its
operating plan, the Company would expect to reduce costs and
capital acquisitions in order to fund cash requirements through
the end of 1998. The Company is continuing to review various
financing strategies, both debt and equity, that would enable it
to fund operations in 1999. The Company is a development stage
company and it is expected that quarterly net losses will
continue through at least the fourth quarter of 1998.
Year 2000
The Company continues to assess its exposure related to the
impact of the Year 2000 date issue. The Year 2000 date issue
arises from the fact that many computer programs use only two
digits to identify a year in a date field. The Company's
products and key financial operational systems are being reviewed
and, where required, plans have been developed to ensure that the
Company's products and computer systems continue to function
properly. Management does not expect these costs will have a
material adverse impact on the Company's financial position,
results of operations or cash flows. However, the Company could
be adversely impacted by the Year 2000 date issue if suppliers,
customers and other businesses do not address this issue
successfully. Management continues to assess these risks in
order to reduce the impact on the Company.
Forward-Looking Statements
The foregoing statements and analysis contain forward-looking
statements and information including information with respect to
the Company's plans and strategy for its business. Such forward-
looking statements are made pursuant to the "safe harbor"
provisions of Section 21E of the Securities Exchange Act of 1934,
as amended, which were enacted as part of the Private Securities
Litigation Reform Act of 1995. Forward-looking statements
contained in the foregoing analysis include marketing, revenue
and expenditure expectations, and other strategies and
anticipated events. Without limiting the foregoing, the words
"believes", "anticipates", "plans", "expects" and similar
expressions are intended to identify forward-looking statements.
There are a number of important factors that could cause actual
events or the Company's actual results to differ materially from
those indicated by such forward-looking statements. These
factors include, without limitation, (i) the level of customer
acceptance of the Company's products; (ii) the ability of the
Company to raise capital sufficient to support its business plan;
(iii) the dependence of the Company on third party suppliers for
certain key technology elements; (iv) the dependence of the
Company on third party marketing, distribution and support,
including the control by the Company's OEM customers over the
timing of the introduction of its products and the need for the
Company to complete and satisfy extensive testing requirements of
its products on a timely basis; and (v) the potential
fluctuations in the Company's quarterly results of operations.
Further information on factors that could cause actual results to
differ from those anticipated is detailed in the Company's Annual
Report on Form 10-K for 1997 as filed with the Securities and
Exchange Commission. Any forward-looking information contained
herein should be considered in light of these factors.
Part II. Other Information
Item 1. Legal Proceedings
The Company is not a party to any material legal proceedings.
Item 2. Changes in Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
On May 9, 1998, the Company held its annual meeting of
shareholders. At the meeting, Joseph T. Brophy and Richard
Hodgson were reelected to continue their service as class 2
directors of the Company and Charles E. Buchheit was reelected to
continue service as a class 1 director of the Company. The votes
cast for each director were as follows: 10,384,716 for the
reelection of Mr. Brophy with 377,461 votes withheld; 10,586,016
for the reelection of Mr. Hodgson with 176,161 votes withheld;
and 10,586,316 for the reelection of Mr. Buchheit with 175,861
withheld. In addition, the following matters were voted upon and
approved at the annual meeting of shareholders:
1.) 5,203,433 votes were cast for the ratification of the sale
and issuance of 4,500 shares of the Company's Series B Preferred
Stock and the issuance of Common Stock issuable upon conversion
of or otherwise pursuant to the terms of the Series B Stock with
386,739 votes cast against, 1,274,977 votes abstaining and
3,897,028 broker nonvotes.
2.) 9,682,015 votes were cast for the approval of an amendment
to the Company's Restated Certificate of Incorporation with
432,851 votes cast against and 647,311 votes abstaining.
3.) 10,310,061 votes were cast for the approval of an amendment
to the Company's 1995 Stock Incentive Plan with 421,169 votes
cast against and 30,947 votes abstaining.
4.) 10,406,554 votes cast for the ratification of
PricewaterhouseCoopers LLP as its independent public accountants
with 341,776 votes cast against and 13,847 votes abstaining.
Item 5. Other Information
On July 21, 1998, the Company entered into a loan agreement with
IBM that provides for a commitment of $2,500,000 at a fixed
interest rate of 10% per year. Interest payments are due
quarterly with the first payment due on October 1, 1998. The
loan is due in full on December 31, 2000 and is secured by the
assets and intellectual property of the Company. As part of the
loan agreement, the Company issued a warrant to IBM that provided
for the purchase of 500,000 shares of common stock at an exercise
price of $2.50 per share. The warrant expires on July 21, 2003.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 10.1 - Employee Agreement dated April 15, 1998 between
Charles E. Buchheit and the Company.
Exhibit 27 - Financial data schedule
(b) Reports filed on Form 8-K
On April 15, 1998, the Company filed a report on Form 8-K in
which it reported that the Board of Directors of Accent Color
Sciences, Inc. elected Charles E. Buchheit to succeed Norman L.
Milliard as President and Chief Executive Officer of the Company
effective May 8, 1998. As of that date Mr. Milliard assumed the
roles of Vice Chairman and Chief Technology Officer of the
Company.
Signatures
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
ACCENT COLOR SCIENCES, INC.
Dated August 12, 1998 By: /s/ Charles E. Buchheit
Charles E. Buchheit
President and Chief
Executive Officer
By: /s/ Patrick J. Pedonti
Patrick J. Pedonti
Vice President and Chief
Financial Officer
(Principal Financial and
Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
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<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 1,430,487
<SECURITIES> 0
<RECEIVABLES> 678,523
<ALLOWANCES> 0
<INVENTORY> 5,916,350
<CURRENT-ASSETS> 8,218,576
<PP&E> 4,685,679
<DEPRECIATION> 2,176,523
<TOTAL-ASSETS> 10,797,969
<CURRENT-LIABILITIES> 4,961,016
<BONDS> 56,725
0
3,572,495
<COMMON> 45,507,801
<OTHER-SE> (43,875,087)
<TOTAL-LIABILITY-AND-EQUITY> 10,797,969
<SALES> 421,517
<TOTAL-REVENUES> 421,517
<CGS> 1,149,207
<TOTAL-COSTS> 1,149,207
<OTHER-EXPENSES> 1,049,155
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,310
<INCOME-PRETAX> (2,954,604)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,954,604)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,954,604)
<EPS-PRIMARY> (.24)
<EPS-DILUTED> (.24)
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<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1995
<PERIOD-END> DEC-31-1996 DEC-31-1995
<CASH> 20,288,535 967
<SECURITIES> 0 0
<RECEIVABLES> 13,669 0
<ALLOWANCES> 0 0
<INVENTORY> 3,362,252 0
<CURRENT-ASSETS> 24,191,891 9,824
<PP&E> 3,283,601 544,733
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<TOTAL-ASSETS> 26,951,465 728,115
<CURRENT-LIABILITIES> 6,003,261 1,872,048
<BONDS> 1,395,259 0
0 1,430,634
0 0
<COMMON> 38,499,490 821,291
<OTHER-SE> (19,154,547) (5,415,886)
<TOTAL-LIABILITY-AND-EQUITY> 26,951,465 728,115
<SALES> 0 0
<TOTAL-REVENUES> 0 0
<CGS> 0 0
<TOTAL-COSTS> 0 0
<OTHER-EXPENSES> 8,204,374 3,050,534
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 655,730 83,292
<INCOME-PRETAX> (13,165,358) (4,216,955)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (13,165,358) 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> (573,303) 0
<CHANGES> 0 0
<NET-INCOME> (13,738,661) (4,216,955)
<EPS-PRIMARY> (3.57) (2.33)
<EPS-DILUTED> (3.57) (2.33)
</TABLE>
-13-
EMPLOYMENT AGREEMENT
THIS AGREEMENT made and entered into as of this 14th day of
April, 1998 by and between Accent Color Sciences, Inc., a
Connecticut corporation (the "Company"), and Charles E. Buchheit,
an individual residing in South Woodstock, Vermont 05071 (the
"Employee").
WHEREAS, the Company desires to retain the services of the
Employee, and the Employee desires to be employed by the Company,
on the terms hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements herein provided, the parties hereto (the
"Parties") hereby agree as follows:
1. Term of Employment. The Company hereby employs the Employee,
and the Employee hereby accepts employment with the Company, all
in accordance with the terms and conditions hereof, for a term of
three (3) years commencing on April 15, 1998, (the "Commencement
Date") and ending April 14, 2001 (the "Employment Term").
2. Scope. During the Employment Term, the Employee shall be
employed by the Company in an executive capacity and shall serve
as President and Chief Executive Officer commencing May 8, 1998
and continuing for the balance of the Employment Term.
3. Compensation.
3.1 The Employee shall be paid a base salary at the rate of
$250,000 per annum ("Base Salary"), payable in equal bi-monthly
installments. Any increase in the Base Salary shall be solely at
the discretion of the Board of Directors (the "Board"). In no
event may the Base Salary be reduced. In addition, the Employee
shall be eligible to receive an annual bonus in an amount up to
60% of his Base Salary (the "Annual Bonus"). The amount of the
Annual Bonus shall be determined for each year, according to
criteria proposed for that year by the Employee to the Board, and
approved by the Board. The parties agree that such criteria will
be proposed by the Employee and acted upon by the Board, as soon
as practicable after the expiration of the first quarter of that
year.
3.2 On the Commencement Date, the Company shall grant to
the Employee Incentive Stock Options (the "ISO Options") to
purchase Ninety-Six Thousand (96,000) shares of the Company's
common stock, no par value, (the "Stock") and Non-Qualified Stock
Options (the "Non-Qualified Options") to purchase One Hundred and
Fifty-four Thousand (154,000) shares of the Stock, all under the
Company's 1995 Stock Incentive Plan (the "Plan") (the ISO Options
and the Non-Qualified Options are herein collectively referred to
as the "Options"). The exercise price of the Options shall be
the fair market value of the Stock on the date of grant. Such
Options shall vest ratably one-third annually on the first,
second and third anniversaries of the Commencement Date so that
upon the third anniversary of the Commencement Date the Employee
shall be fully vested in all such Options. The Options shall be
subject to approval by the shareholders of the Company of a
proposed increase in the number of authorized shares under the
Plan at the 1998 Annual Meeting of Shareholders.
3.3 On the Commencement Date, the Company shall grant to
the Employee a warrant to purchase One Hundred Thousand (100,000)
shares of Stock at the fair market value of the Stock on the date
of grant (determined in the same manner as under the Plan). Such
warrant shall be exercisable at any time from and after the date
of grant for a period of five (5) years from the date of grant.
3.4 The Employee shall be entitled to participate in any
employee benefit plan or program generally applicable to senior
executives of the Company, including without limitation pension,
life insurance, tax-qualified profit sharing, and medical
coverages as in effect from time to time.
3.5 The Employee shall be entitled to vacation in
accordance with the Company's vacation policy as currently in
effect from time to time, provided, however, in no event shall
such vacation be for a period less than five (5) weeks per annum.
The Employee may elect, at his option, to defer the use of
vacation from the year it is earned to subsequent years,
provided, however, the Company has the option to pay cash in lieu
of such deferred vacation, up to a maximum amount of two (2)
weeks of such deferred vacation, if (a) the amount of such
deferred vacation exceeds two weeks and (b) such payment is made
within thirty (30) days following the end of the year such
deferral is elected.
In the event of termination under Section 4 below, any and
all vacation owed to the Employee will be paid at the time of
termination.
3.6 During the term of this Agreement, the Company shall
reimburse the Employee, on a quarterly basis, for reasonable
living expenses in the Hartford, Connecticut area until the
Employee's establishment of a permanent residence in the
Hartford, Connecticut area. Such reimbursements shall be made
based on receipts provided to the Company by the Employee.
4. Termination.
4.1 General. Notwithstanding the provisions of Sections 1,
2 and 3 above, the Employee's employment may be terminated prior
to the end of the Employment Term as provided in Sections 4.2,
4.3, 4.4, 4.5 and 4.6 below.
4.2 Death or Disability. The Employee's employment shall
be terminated in the event of his death or Disability. Upon
termination of the Employee's employment hereunder as a result of
the Employee's death or Disability, the Employee (or, in the
event of his death, his Beneficiary) shall be entitled to (a) all
arrears of salary and expenses, (b) full and immediate vesting of
any then unvested options to purchase securities of the Company
which Employee may then hold, and (c) any other compensation or
benefits as determined under applicable plans and programs of the
Company (as in effect immediately prior to such termination).
For the purposes of this Agreement, "Disability" shall be
deemed to have occurred when the Employee shall be unable to
perform the duties of his then employment with the Company for an
aggregate period of more than 36 weeks in a consecutive period of
52 weeks, due to physical or mental impairment (other than as a
result of addiction to alcohol or any other drug) as determined
by a physician acceptable to both the Company and Employee.
The Employee may designate one or more persons to receive
payment of any compensation or other benefit payable on account
of the Employee's death, by giving written notice of such
designation to the Company in accordance with Section 13 below.
The person so designated shall be the Employee's Beneficiary with
respect to such payment. In the event the Employee has not
designated a Beneficiary with respect to any particular payment,
the Employee's estate shall be the Beneficiary with respect to
such payment.
4.3 Termination for Cause. The Employee's employment
hereunder may be terminated "for Cause" at any time upon written
notice from the Company to the Employee, which notice shall set
forth the specific facts on which such termination is based.
Upon any such termination for Cause, the Employee shall be
entitled to (i) all arrears of salary and expenses and (ii) any
other compensation or benefits as determined under applicable
plans and programs of the Company (as in effect immediately prior
to such termination). For the purposes of this Agreement "Cause"
shall mean:
(a) a dishonest act or omission by the Employee which
either (x) is intended to result in his substantial personal
enrichment at the expense of the Company, or (y) results in
his conviction of, or plea of nolo contendere to, a felony
or other serious crime (not including a motor vehicle
offense or a crime resulting from an action or omission
taken by the Employee in the course of his duties hereunder
and in the good faith belief that such action or omission
was in the best interest of the Company);
(b) gross misconduct or gross neglect of the
executive's duties and responsibilities hereunder, causing
material harm to the Company, unless remedied within 30 days
after receipt of written notice specifying the nature of
such misconduct or neglect from the Company; or
(c) a willful and material breach of this Agreement by
the Employee, unless such breach is corrected within 30 days
after receipt of written notice from the Company specifying
the nature of such breach.
Non-performance of duties due to Disability shall not
be grounds for termination for Cause.
4.4 Termination Without Cause. If the Company terminates
the Employee's employment other than for Disability, as provided
in Section 4.2, above, or for Cause, as provided in Section 4.3,
above, the Employee shall be entitled to:
(a) base salary for the longer of (i) a two-year
period commencing on the date Employee's employment
with the Company is terminated and (ii) the balance of
the Employment Term (such period hereinafter referred
to as the "Termination Period");
(b) Immediate vesting in all outstanding options
previously granted to the Employee;
(c) payment of health benefits for the Termination
Period; and(d) any vacation owed Employee under
subsection 3.5 above.
4.5 Constructive Termination Without Cause. In the event:
(a) there is a reduction, without the Employee's
consent, (i) in Employee's cash compensation or (ii) in the
aggregate benefits provided under this Agreement, or
(b) the Employee is removed from his position as Chief
Executive Officer of the Company, other than as a result of
a Disability as provided in Section 4.2 above or as a result
of a termination for Cause, as provided in Section 4.3
above, or
(c) there is a Change of Control of the Company.
the Employee shall be entitled to terminate his employment
voluntarily, and such termination shall be treated as a
termination by the Company without Cause under Section 4.4 above;
provided, however, that as a condition of such entitlement, the
Employee must serve the Company with written notice of his
voluntary termination of employment within twelve (12) months
after the occurrence of any of such events described in
subparagraphs (a), (b) or (c) of this Section 4.5, which event
shall be specified in such notice.
For purposes of this Section 4.5, a "Change of Control"
shall mean (i) the acquisition by any individual, entity or group
(within the meaning of Section 13(d)(3) or 14(d)(2) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"))
(a "Person") of beneficial ownership (within the meaning of Rule
13d-3 promulgated under the Exchange Act) of 30% or more of
either (a) the then outstanding shares of common stock of the
Company (the "Outstanding Common Stock") or (b) the combined
voting power of the then outstanding voting securities of the
Company entitled to vote generally in the election of directors
(the "Outstanding Voting Securities"); provided, however, that
for purposes of this subsection (i), the following acquisitions
shall not constitute a Change of Control: 1) any acquisition
directly from the Company, 2) any acquisition by the Company, or
3) any acquisition by any employee benefit plan (or related
trust) sponsored or maintained by the Company or any corporation
controlled by the Company; or (ii) An event that shall cause the
individuals who, as of the date hereof, constitute the Board of
Directors (the "Incumbent Board") to cease, for any reason, to
constitute at least a majority of the Board of Directors;
provided, however, that any individual becoming a director
subsequent to the date hereof, whose election or nomination for
election by the Company's shareholders was approved by a vote of
at least a majority of the directors then comprising the
Incumbent Board, shall be considered as though such individual
were a member of the Incumbent Board, but excluding, for this
purpose, any such individual whose initial assumption of office
occurs as a result of an actual or threatened election contest
with respect to the election or removal of directors or other
actual or threatened solicitation of proxies or consents by or on
behalf of a Person other than the Board of Directors; or (iii)
Approval by the shareholders of the Company of a complete
liquidation or dissolution of the Company.
4.6 Voluntary Termination. The Employee may voluntarily
terminate his employment hereunder provided that, in the event of
such a termination, other than pursuant to a constructive
termination without cause, as provided in Section 4.5 above, the
Employee shall receive no further compensation, except as may be
provided in applicable plans and programs.
5. Covenant Not to Disclose. The Employee covenants and agrees
that he will not, to the detriment of the Company, at any time
during or after the termination of his employment, whether under
this Agreement or otherwise, reveal, divulge or make known to any
person (other than the Company or any of its Affiliates) or use
for his own benefit or purposes, or for the benefit or purposes
of any other person, any customer lists, trade secrets, formulae,
records, data, know-how or any secret or confidential information
whatsoever, including without limitation that used by the Company
or its Affiliates prior to the date of this Agreement or during
the Employment Term and made known (whether or not with the
knowledge and permission of the Company, whether or not
developed, devised or otherwise created in whole or in part by
the efforts of the Employee) to the Employee by reason of his
employment by the Company; provided that it shall not be a
violation of this Section 5 for the Employee to make any
disclosure (i) necessary or appropriate to the performance of his
duties hereunder or (ii) required by any law (including any court
or governmental order), so long as, in the case of disclosure
required by law, the Employee notifies the Company of such
requirement, where possible, and cooperates with the Company in
taking any reasonable steps to resist such disclosure (any costs
thereby incurred to be paid by the Company). The Employee
further covenants and agrees that he shall retain all such
knowledge and information which he shall acquire or develop
respecting such customers' lists, trade secrets, formulae,
records, data, know-how and secret or confidential information in
trust for the sole benefit of the Company and its successors and
assigns and upon leaving the employ of the Company shall return
all such documentation and information then in his possession to
the Company.
6. Inventions, etc. The Employee agrees that all inventions,
copyrightable material, secret processes, formulae, trademarks,
trade secrets and the like, discovered or developed by the
Employee while in the employ of the Company, whether in the
course of his employment or otherwise on such employer's time or
property, shall be disclosed promptly to the Company and shall,
if the Company elects in writing, be the exclusive property of
the Company. At the request of the Company the Employee shall
assign all such property to the Company, and the Employee agrees
to execute such instruments of transfer, assignment, conveyance
or confirmation and such other documents as may reasonably be
requested by the Company to transfer, confirm and perfect in the
Company all legally protected rights in any such inventions,
copyrightable material, secret processes, formulae, trademarks,
trade secrets and the like. This Section 6 shall not apply to any
property, the development and nature of which (i) is unrelated to
any business then being conducted, developed or actively being
considered for development by the Company, and (ii) is not
competitive with any such business.
7. Covenant Not to Compete.
7.1 The Employee agrees that for the period set forth in
Section 7.2 below, (the "No Compete Term"), he shall not, without
the prior written consent of the Company, directly or indirectly,
whether as principal, partner, stockholder or as agent, officer,
director, employee, consultant, or otherwise, alone or in
association with any other person, firm, corporation, or other
business organization, carry on, or be engaged, concerned or take
part in, or render services to, or own, share in the earnings of,
or invest in the stock, bonds or other securities of any person,
firm, corporation or other business organization which is engaged
in a business involving the manufacturing or selling of high-
speed, color printers and printing systems similar to such
printers and printing systems manufactured and sold by the
Company (the "Company Products") or in soliciting sales of any
products similar to and competitive with the Company Products
from any business that was a customer of the Company at any time
within 24 months immediately preceding the termination of the
Employee's employment or from any business to which the Company
attempted to sell its Company Products during such 24 month
period, and such restrictions will pertain to the following
geographic areas:
(a) within the world, but if a court should find it
unreasonable, then
(b) within North America, but if a court should find
it unreasonable, then
(c) within the Continental United States of America,
but if a court should find it unreasonable, then
(d) within the Northeast and New England states of the
U.S., but if a court should find it unreasonable, then
(e) within the New England states and New York, but if
a court should find it unreasonable, then
(f) within Connecticut and New York;
provided, however, that the Employee may (i) own or invest in
stocks, bonds or other securities of the Company and (ii) own or
invest in stocks, bonds or other securities of any other
corporation if such stocks, bonds or other securities are listed
on any national or regional securities exchange or have been
registered under Section 12(g) of the Securities Exchange Act of
1934; provided his investment does not exceed, in the case of any
class of the capital stock of any one issuer, 2 percent of the
issued and outstanding shares of such class, or, in the case of
bonds or other securities, 2 percent of the aggregate principal
amount thereof issued and outstanding; and such investment would
not prevent, directly or indirectly, the transaction of business
by the Company with any state, district, territory or possession
of the United States or any governmental subdivision, agency or
instrumentality thereof by virtue of any statute, law, regulation
or administrative practice.
7.2 If the Employee's employment is terminated
(a) for Cause, pursuant to Section 4.3, or
(b) as a result of the Employee's voluntary
termination, pursuant to Section 4.6 above,
the No Compete Term shall be the period ending on the first
anniversary of the termination of the Employee's employment. If
the Employee's employment is terminated for any reason other than
as described immediately above, the No Compete Term shall be
coincident with the Termination Period. Notwithstanding the
above, the Company may elect in writing to extend the No Compete
Term for a period of up to three years, provided that the Company
shall (i) compensate the Employee for any period with respect to
which it elects to extend the No Compete Term (beyond any period
of salary continuation) at an annual rate equal to the base
salary as in effect on the last day of the Employee's employment,
to be paid annually in advance and (ii) provide the Employee, at
the Company's sole expense, health benefits for such period;
provided that if the Employee voluntarily terminates his
employment as a result of a reduction in compensation or benefits
as described in Section 4.5(a) above, the Employee's compensation
and benefits during the extended No Compete Term shall be
computed without regard to such reduction.
7.3 It is understood by and between the Parties hereto that
the foregoing covenant by the Employee not to enter into
competition as set forth in Section 7.1 hereof, and the covenant
by the Employee not to interfere with certain employees of the
Company as set forth in Section 9 below, are essential elements
of this Agreement and that, but for the agreement of the Employee
to comply with such covenants, the Company would not have entered
into this Agreement.
8. Business Materials, Covenant to Report. All written
materials, records and documents made by the Employee or coming
into his possession concerning the business or affairs of the
Company or any of its Affiliates, shall be the sole property of
the Company or its Affiliates, as the case may be, and, upon the
termination of his employment with the Company or upon the
request of the Company at any time, the Employee shall promptly
deliver any such documents then in his possession to the Company.
The Employee agrees to render to the Company such reports of the
activities undertaken by the Employee, or conducted under the
Employee's direction, pursuant hereto during the Employment Term
as the Company may reasonably request.
9. Non-Interference. The Employee agrees that during the No
Compete Term he will not, whether for his own account or for the
account of any other person, firm, corporation or other business
organization, interfere with the Company's relationship with, or
endeavor to entice away from the Company, any individual who at
any time during the term of the Employee's employment with the
Company was employed by the Company in an executive, managerial
or sales capacity. It shall not be a violation of this Section 9
for the Employee, while employed by the Company, to dismiss any
employee (or to take similar action with regard to any employee)
if such action is taken in good faith in the performance of the
Employee's duties and responsibilities here under.
10. Specific Performance. Without intending to limit the
remedies available to the Company, the Employee further agrees
that damages at law will be an insufficient remedy to the Company
in the event that the Employee violates the terms of Section 5,
6, 7, 8 or 9, and that the Company may apply for and have
injunctive relief in any court of competent jurisdiction to
restrain the breach or threatened breach of or otherwise to
specifically enforce any of the covenants of such Sections.
11. Compliance with Other Agreements. The Employee represents
and warrants to the Company that, to the best of the Employee's
knowledge, the execution of this Agreement by him and his
performance of his obligations hereunder will not, with or
without the giving of notice and/or the passage of time, conflict
with, result in the breach of any provision of or the termination
of, or constitute a default under, any agreement to which the
Employee is a party or by which the Employee is or may be bound.
12. Binding Effect; Benefits. This Agreement shall inure to the
benefit of, and shall be binding upon, the Parties hereto and
their respective successors, assigns, heirs and legal
representatives. Insofar as the Employee is concerned, this
contract, being personal, cannot be assigned except that the
Employee's rights to compensation and benefits may pass to the
Employee's Beneficiary as provided hereinabove, and may pass by
will or operation of law. The Company may not assign this
Agreement, except that such rights or obligations may be assigned
or transferred pursuant to a merger, consolidation or sale of the
Company, provided that the assignee or transferee assumes the
liabilities, obligations and duties of the Company, as contained
in this Agreement, either contractually or as a matter of law.
13. Notices. All notices and other communications which are
required or may be given under this Agreement shall be in writing
and shall be deemed to have been duly given if delivered
personally, by courier or registered or certified mail, return
receipt requested, postage prepaid, to the Party being notified
at the following address, or to such other address as the Party
shall have specified by notice in writing to the other Party:
(a) if to the Employee, to him at the address
hereinabove first mentioned, and
(b) if to the Company, to it at:
Accent Color Sciences, Inc.
800 Connecticut Boulevard
East Hartford, CT 06108
Attention: Corporate Secretary
All such notices and communications shall be deemed to have been
received on the date of delivery thereof.
14. Entire Agreement. This Agreement contains the entire
agreement between the Parties hereto with respect to the subject
matter hereof and supersedes all prior agreements and
understandings, oral or written, between the Parties hereto with
respect to the subject matter hereof.
15. Amendments and Waivers. This Agreement may not be modified
or amended except by an instrument or instruments in writing
signed by the Party against whom enforcement of any such
modification or amendment is sought. Either Party hereto may, by
an instrument in writing, waive compliance by the other Party
with any term or provision of this Agreement on the part of such
other Party hereto to be performed or complied with. The waiver
by any Party hereto of a breach of any term or provision of this
Agreement shall not be construed as a waiver of any subsequent
breach.
16. Section and other Headings. The section and other headings
contained in this Agreement are for reference purposes only and
shall not be deemed to be a part of this Agreement or to affect
the meaning or interpretation of this Agreement.
17. Separability. Any term or provision of this Agreement which
is invalid or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such invalidity or
unenforceability without rendering invalid or unenforceable the
remaining terms and provisions of this Agreement or affecting the
validity or enforceability of any of the terms or provisions of
this Agreement in any other jurisdiction; provided, however, that
if the provisions of Section 7 or Section 9 should be or become
invalid, illegal or unenforceable under the laws of the State of
Connecticut, the restrictions contained in such section shall be
deemed to be modified so that, as modified, said restrictions
shall be valid, legal and enforceable in accordance with the
intent expressed in Section 7 or 9, as the case may be. This
Section shall be interpreted so as to be consistent with the
operation of Section 7.1 above.
18. Governing Law. This Agreement shall be construed and
governed in accordance with the laws of the State of Connecticut
and the United States of America, without regard to principles of
conflict of laws.
19. Resolution of Disputes. Any controversy or claim arising
out of or relating to this Agreement, or any breach thereof,
shall be settled by arbitration in accordance with the rules of
the American Arbitration Association (the "AAA") before a single
arbitrator chosen by the Parties from a list provided by the AAA.
Judgment upon an award rendered by the arbitrator may be entered
in any court having jurisdiction thereof. The arbitration shall
be held in Hartford, Connecticut or in such other place as the
Parties may agree. Each of the Company and the Employee shall
bear its or his own costs of the arbitration including, but not
limited to, fees and disbursements of counsel, provided that in
the event the Employee shall prevail the Company shall pay all of
the Employee's costs.
IN WITNESS WHEREOF, the Parties hereto have duly executed
this Agreement on the date first above written.
ACCENT COLOR SCIENCES, INC.
By: /s/ Norman L. Milliard
Norman L. Milliard
Its President and
Chief Executive Officer
/s/ Charles E. Buchheit
Charles E. Buchheit
